Most people are aware of the financial risks that can negatively impact their retirement. They understand how inflation, rising interest rates and the poor performance of investments can erode their savings.
What they often fail to realize is that non-financial
events, such as widowhood, unexpected
illness or living longer than anticipated, can also
pose a risk to their retirement security. In fact,
these hard-to-predict events can devastate an
otherwise well-thought-out plan.
However, understanding these risks, can help
you to better prepared for them.
Pre-Retirement Shocks
Pre-retirement refers to the 10-year period
before retirement. This is a busy time of life
from a financial perspective. College expenses
and home mortgages are being paid, income is
peaking, and consumers are beginning to focus
on saving for retirement.
But things often go wrong during late middle
age. During the decade leading up to retirement,
three out of four married couples who are
college graduates experience an event that could
derail their retirement plans. The most common
event (35% of couples) is the onset of a major
medical condition (in the husband or wife), such
as cancer, heart problems, a stroke or diabetes.
Other shocks include a frail parent or in-law
who requires physical and/or financial support
(34%), health-related work limitation (24%), job
loss (19%) and widowhood (5%).1
Job loss is especially noteworthy given today’s
difficult economic climate. A 2011 study by the
Urban Institute reported that of workers aged
50-61 who lost their job in 2009, only one in
four found a new job within a year. When they
did, they often had to accept deep pay cuts that
averaged 20% less than their prior salary.2
Further evidence of the frequency of these
shocks was provided by a report from the
Society of Actuaries. Four of 10 people retired
before they expected to, often because of poor
health, job loss or to care for a spouse or other
family members.3
Health Care Costs
Most people are surprised to learn that many
healthy couples spend more money on medical
care during their retirement than unhealthy
couples. The reason is because healthy people
live longer, eventually develop health problems,
survive longer after an illness develops, and are
more likely to need chronic care.4
These costs can be very high. Fidelity
Investments estimates that an average 65-yearold
couple retiring in 2011 will need $230,000 to
pay for out-of-pocket medical expenses
throughout retirement, not including nursing
home care. And since medical costs are
increasing faster than the rate of inflation, they
will consume a larger percentage of retirement
income in the future.5
One other uncertainty is Medicare. If federal
governmental policy decisions are made that
decrease reimbursement for medical care during
retirement, out-of-pocket medical expenses
might be considerably higher than today.
Chronic Care Costs
Chronic care is care provided for those who
cannot perform some or all activities of daily
living, such as bathing, continence, dressing,
eating, toileting and transferring. For people age
65 and older, six in 10 men and eight in 10
women will need chronic care during their
lifetime,6 mainly for Alzheimer’s disease, stroke,
crippling arthritis, Parkinson’s disease, serious
accidents and degenerative neurologic diseases.
A March 2011 report from the Alzheimer’s
Association highlighted the impact of
Alzheimer’s in our lives.7 There are 5.4 million
Americans with Alzheimer’s disease, and 15
million unpaid caregivers providing 17 billion
hours of unpaid care to them. Over half (55%)
of unpaid caregivers are the primary
breadwinners of the household, 60% are
women, and one in four family caregivers have
children under 18 years old living with them.
A majority of people (73%) who need chronic
care are cared for at home by a family member,
not in an assisted living facility or a nursing
home.8 And this percentage might be even
higher if people could stay at home. Sadly, many
people enter a nursing home not because they
are severely disabled, but because they no
longer have a caregiver at home.
Longevity
Most people are more worried about outliving
their money than dying,9 and for good reason.
The number of Americans age 65 and older in
2030 is projected to be twice as large as in
2000, growing from 35 million to 72 million,10
and representing nearly 20% of the
population.11 America’s population of
centenarians (already the largest in the world)
has roughly doubled in the past 20 years, to
around 72,000, and is projected to at least
double again by 2020.12 Some demographers
predict that if the pace of increase in life
expectancy continues through the 21st century,
sources say, most babies born since 2000 will
live to the age of 100.13
Here’s a real world example of the need to
address longevity risk. Imagine a couple of 65-
year-olds, both of whom were approved for life
insurance at standard rates. The husband has a
projected life expectancy of age 87 and the wife
has a projected life expectancy of 89.
This means that approximately 38 of 100 men
(almost four in 10) and 50 of 100 women (half) will
reach age 90.14 More amazing still is that 14 of the
100 men (one in seven) and 25 of the 100 women
(one in four) will live to at least age 95.
Widowhood
In the example above, there is a two-year
difference in the life expectancy of a 65-year-old
man and woman (87 versus 89). This would lead
most people to conclude that widowhood is
usually relatively short. But this is not true.
Widowhood often lasts for many years or even
decades.
First, the good news: People are living longer and
living longer together. According to the 2000
Individual Annuity Mortality Basic Table, half of
65-year-old couples will reach age 80 together.
The bad news is that after one spouse dies, the
survivor is often left alone for a long time. For
65-year-old couples, almost three in four (71%)
will be widowed for five years or more, and nearly
half (46%) will be widowed for ten years or more.
If the surviving spouse is the wife, as is often the
case, she may have less savings (especially if the
couple’s retirement nest egg was depleted by the
illness of the partner who died), lower Social
Security benefits and smaller pensions. To make
matters worse, she no longer has a spouse to care
for her when she becomes ill at a later age.
While we may not be able to prevent non-financial
events, you have financial options that can change
how these events affect you and your family.
Although you may not be able to save enough
money to protect yourself financially from the
potential costs of all of life’s unforeseen events,
there are new and developing insurance products
that can help you access income from your policy’s
death benefit when it is needed most.
This means that approximately 38 of 100 men
(almost four in 10) and 50 of 100 women (half) will
reach age 90.14 More amazing still is that 14 of the
100 men (one in seven) and 25 of the 100 women
(one in four) will live to at least age 95.
Widowhood
In the example above, there is a two-year
difference in the life expectancy of a 65-year-old
man and woman (87 versus 89). This would lead
most people to conclude that widowhood is
usually relatively short. But this is not true.
Widowhood often lasts for many years or even
decades.
First, the good news: People are living longer and
living longer together. According to the 2000
Individual Annuity Mortality Basic Table, half of
65-year-old couples will reach age 80 together.
The bad news is that after one spouse dies, the
survivor is often left alone for a long time. For
65-year-old couples, almost three in four (71%)
will be widowed for five years or more, and nearly
half (46%) will be widowed for ten years or more.
If the surviving spouse is the wife, as is often the
case, she may have less savings (especially if the
couple’s retirement nest egg was depleted by the
illness of the partner who died), lower Social
Security benefits and smaller pensions. To make
matters worse, she no longer has a spouse to care
for her when she becomes ill at a later age.
While we may not be able to prevent non-financial
events, you have financial options that can change
how these events affect you and your family.
Although you may not be able to save enough
money to protect yourself financially from the
potential costs of all of life’s unforeseen events,
there are new and developing insurance products
that can help you access income from your policy’s
death benefit when it is needed most.
Dr. Robert Pokorski is chief medical strategist in The Hartford’s Individual Life Insurance business.
1. Richard W. Johnson. When the nest egg cracks. Urban Institute, 2006.
2. Richard W. Johnson, Janice S. Park. Can unemployed older workers find work? Urban Institute, 2006.
3. Billings MB, Rappaport AM. Living to 100 – Challenges and opportunities for employers. October 25, 2010.
4. Sun W, et al. Does staying healthy reduce your lifetime health care costs? Center for Retirement Research. May 2010,
Number 10-8.
5. Johnson RW, Mommaerts C. Will health care costs bankrupt aging boomers? The Urban Institute.
February 2010.
6. Kemper P, et al. Inquiry. Winter 2005/2006;42:335-50
7. 2011 Alzheimer’s Disease Facts and Figures. Alzheimer’s Association.
8. National Care Planning Council, 2011.
9. Anne R. Carey and Sam Ward, USA Today, February 16, 2011. Source: Allianz survey of adults ages 44-75.
10. Federal Interagency Forum on Aging-Related Statistics. Older Americans 2010: Key Indicators of Well-Being.
Washington, DC: U.S. Government Printing Office. July 2010.
11. U.S. Department of Health and Human Services: National Clearinghouse for Long-Term Care Information, 2010.
12. Number of 100-year-olds is booming in US. Associated Press (AP), April 27, 2011.
13. Christensen K, Doblhammer G, Rau R, et al. Ageing populations: The challenges ahead. Lancet 2009;374:1196-208/
14. The 2008 Valuation Basic Table, Select and Ultimate Nonsmoker, which is based on U.S. insurance company
individually underwritten mortality experience.
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